Gross ecosystem product in macroeconomic modelling

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Gross ecosystem product in macroeconomic modelling

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Business and biodiversity basics Identifying and measuring impacts and dependencies Integrating biodiversity into a business context

Economic indicators such as Gross Domestic Product (GDP) do not reflect the value of nature. For this reason, it is necessary to address the Gross Ecosystem Product (GDP). Ecosystem services such as crop pollination, water purification or climate regulation contribute to the economy both directly and indirectly.

Nature-sensitive decision-making requires that the aforementioned benefits be taken into account in the economic decision-making process. However, in most assessments, Gross Domestic Product (GDP), which shows the total value of production/income generated in a country, is used as the main indicator of economic development, without fully capturing nature's contributions to economic activity and human well-being. The concept of Gross Ecosystem Product (GEP), which summarises the value that ecosystem services bring to the economy in monetary terms, is one way to overcome these shortcomings in policy assessments.

This white paper introduces and showcases the new PBE module in the MAGNET macroeconomic model. MAGNET is a global CGE model based on the GTAP that is used to assess the impact of policies on the economy. MAGNET's endogenous representation of land supply and forestry makes this model particularly suitable for this task. Built on the basis of Integrated Natural Capital Accounting (INCA) data on the monetary value of ecosystem services, the new EBP module allows comparing the impact of different policies on both GDP and EBP in the European Union. The report provides an example of practical application of the PBE module. Specifically, a prospective policy scenario is applied that involves a significant change in consumption patterns. The results of the preliminary simulations show that this impact can differ significantly between GDP and EBP as well as between specific ecosystem services.

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